The implications for the design phase are fairly important too.
Our UX person prototypes things with pieces of paper printed in a haphazard way. Instead of a flashy series of screens, the users are looking at pieces of paper they can cut up with scissors or scribble on with a pencil, and as Joel points out, they can't help but notice that none of this _exists_ yet, it's just pieces of paper and so they don't get the erroneous impression that it's set in stone and asking to change it will mean a delay or increased costs.
The haphazard printing also means when your question is "Is this phrasing clear?" or "How should these things be grouped?" you don't get feedback about typography, iconography, image formats, or how slow the demo machine is.